Sawaya Company had depreciation and amortization expenses of

Sawaya Company had depreciation and amortization expenses of $522,311, interest expenses of $114,077, and an EBITDA of $1,521,087 for the year ended June 30, 2010. What is the Times Interest Earned for this company?

Solution

  Times Interest Earned, affectionately referred to as TIE is:

TIE = EBIT / interest expense

However, you were given EBITDA, so you have just 1 extra step

Step 1: Find EBIT
To do this you\'ll need to take your EBITDA and take out the Depreciation and Amortization expense:

EBITDA: $1,521,087
-Depreciation & Amortization: $522,311
=EBIT : $998,776

Step 2: Compute the TIE Ration

TIE = EBIT / interest expense
TIE = $998,776 / $114,077
TIE = 8.75--->8.8